Budget deal poses threat to pay, benefits, jobs

Nov. 12, 2012 - 07:25AM
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(AFP)

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President Obama’s re-election last week means some of the most aggressive ideas for cutting federal pay and benefits are likely off the table. But the threat of some cuts still looms as policymakers set about forging a comprehensive budget deal in the coming months to fend off severe tax increases and spending cuts dubbed the “fiscal cliff.”

If there is such an agreement, “I don’t see how federal employees avoid being involved,” said Steve Bell, a former Senate Budget Committee staffer now at the Bipartisan Policy Center, a think tank. “They are a group that people in Congress like to beat up on and scapegoat.”

One frequently discussed option, Bell said, would cut into federal pensions by calculating pensions based on employees’ five highest-earning years instead of the current three years.

The “high-five” proposal, broached by the Simpson-Bowles commission on long-term deficit reduction, would save $5 billion through 2020, the bipartisan panel said in its report two years ago.

Other cost-cutting ideas that could gain traction:

 Using the so-called chained Consumer Price Index to set all inflationary adjustments, including cost-of-living adjustments for civilian and military pensions. That approach, recommended by a group of six Republican and Democratic senators last year as part of another deficit-cutting plan, would mean lower COLAs than the current system, which employs the Consumer Price Index for Urban Wage Earners and Clerical Workers.

 Obama’s proposal last year to eliminate a supplemental payment to retirees under the Federal Employees Retirement System not yet eligible for Social Security. The proposed change would affect only new employees.

Although the president’s re-election came as a relief to the leaders of federal employee unions, they are also nervous about what the White House could agree to as part of a long-term budget deal with House Speaker John Boehner, R-Ohio, and congressional Republicans.

“There’s always that concern: What impacts to the federal workforce are going to fall out as a result of the discussions and the compromises that you typically see going on in any budget bill,” said William Dougan, national president of the National Federation of Federal Employees. “What we need to do is make our views known.”

In 2011 and 2012, for example, Obama froze base federal pay, although employees could still receive promotion raises and step increases. After proposing a 0.5 percent General Schedule increase for fiscal 2013, Obama prevailed on lawmakers to delay it until a full-year budget is approved. Agencies are now working under a six-month continuing resolution, meaning the raise probably won’t take effect until April at the earliest. Unions are lobbying for it to be retroactive to January.

Unions are also already lining up against potential changes to either pension contributions or benefits, arguing that federal employees have already sacrificed enough.

“We just don’t think that should be part of the conversation at all,” Colleen Kelley, president of the National Treasury Employees Union, said in a phone interview. Like the leaders of other unions and advocacy groups, Kelley expressed satisfaction at Obama’s victory over Republican presidential nominee Mitt Romney. During the campaign, Romney argued that federal employees’ pay and benefits were excessive in comparison with the private sector and needed to be recalibrated. He also urged a 10 percent cut in the size of the federal workforce — now at about 2.1 million — by making only one new hire for every two employees who leave.

And Romney’s running mate, Rep. Paul Ryan, R-Wis., was the chief sponsor of a House-passed bill to increase the basic FERS employee contribution rate from 0.8 percent of salary to 5.8 percent over five years. The Democratic-controlled Senate has not acted on the measure.

“President Obama’s election is a victory for not just the country but for every federal and D.C. government employee,” J. David Cox Sr., president of the American Federation of Government Employees, told reporters in a conference call. “Mr. Romney made it very clear to us in the beginning that he did not like government and he did not like unions.”

Pressure to cut

But in his second four-year term, the Democratic incumbent will be under heavy pressure to find more places to cut spending — including in federal payroll and benefits accounts.

Record deficits aren’t going away because of the election, said John Palguta, vice president for policy at Partnership for Public Service. “There’s going to be continued pressure to find cost savings.”

Tens of thousands — perhaps hundreds of thousands — of federal employees could face furloughs next year, for example, if Congress and the White House fail to head off across-the-board budget cuts, known as sequestration, set to take effect Jan. 2. Those cuts would total $109 billion and be split evenly between defense and nondefense programs. Military personnel and the Veterans Affairs Department would be exempted, White House officials have said.

This week, lawmakers kick off a lame-duck session that will try to cancel or delay those cuts.

Obama has insisted that the sequestration cuts will be avoided, possibly as part of a broader deal that would seek to contain Medicare and Medicaid costs, along with settling whether to continue at least some of the Bush-era tax cuts that expire at the end of the year.

A starting point

NFFE’s Dougan expects the recommendations of the 2010 Simpson-Bowles commission will be a key discussion point during the talks. Switching to the high-five pension system was not the panel’s only idea for revamping federal pay and benefits programs. It also recommended:

 Deferring cost-of-living adjustments for military and civilian retirees until they reach age 62. Instead, retirees would get a one-time, catch-up adjustment upon reaching 62. Projected savings through 2020 would total $17 billion.

 Converting federal health care benefits to a fixed subsidy — known as a “premium support” — that would grow by no more than the rate of growth in the gross domestic product plus 1 percent each year. For federal retirees, the subsidy could be used to pay a portion of the Medicare premium.

 Equalizing pension plan contributions between the government and employees to save $51 billion through 2020. Although the report did not furnish details, FERS participants currently contribute 0.8 percent of their salaries to the program, while the government pitches in 11.7 percent.

“Military and civilian pensions are both out of line with pension benefits available to the average worker in the private sector and, in some cases, out of line with each other across different categories of federal review,” the commission said. It called for a “federal workforce entitlement review” to examine both issues.

 Trimming the federal workforce by 10 percent, or about 200,000 jobs, through attrition.

Obama, who created the Simpson-Bowles commission, never endorsed the report’s recommendations as a package. The 18-member commission also could not muster the 14-vote majority needed to send its report to Congress for an up-or-down vote.